ESTIMATING CONSUMER SURPLUS IN THE CENSORED LINEAR-MODEL

The TOBIT estimator of the linear model is commonly used to control for censoring. However, when predicting either demand or consumer surplus, simply substituting the resulting coefficient estimates back into the linear functional form is incorrect. This failure stems from the non-linear impact of variations in cut-off price in an otherwise uniform population. Several techniques that recognize this potential problem are recommended. The performance of these recommended techniques is investigated with a Monte Carlo simulation.